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Operational Efficiencies to Aid Vulcan's (VMC) Q2 Earnings

Zacks Equity Research

Vulcan Materials Company VMC is slated to release second-quarter 2019 results on Jul 25, before the opening bell. In the last reported quarter, the company reported adjusted earnings of 46 cents per share and revenues of $996.5 million, outpacing the Zacks Consensus Estimate by 39.4% and 9.5%, respectively.

Not only its top and bottom lines surpassed analysts’ expectation, but also the metrics increased year over year on the back of broad-based shipment growth, price improvements and operating efficiencies in the aggregates business. Robust growth in public construction demand and continued improvement in private demand added to the positives. We believe that these factors are likely to aid the company’s second-quarter results as well.

Notably, the stock has a strong record of earnings surprises, having surpassed the Zacks Consensus Estimate in six of the trailing seven quarters.

How are Estimates Faring in Q2?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for earnings per share for the quarter to be reported has been revised downward by 2% to $1.45 over the past seven days. Nonetheless, this indicates an increase of 17.9% from the year-ago quarter. The consensus estimate for revenues is pegged at $1.31 billion, up 8.8% year over year.

Vulcan Materials Company Price and EPS Surprise

Vulcan Materials Company Price and EPS Surprise

Vulcan Materials Company price-eps-surprise | Vulcan Materials Company Quote

Factors That Might Influence Upcoming Results

During the quarter, Vulcan is likely to have benefitted from ongoing efforts to enhance operational excellence. The company’s earnings in second-quarter 2019 are likely to gain from improvement in gross profit. Also, it expects top-line improvement in the quarter, given significant growth in demand and shipment.

Vulcan’s Aggregates business (including crushed stone, sand and gravel, and sand and other aggregates), which contributed 83.8% to total first-quarter 2019 revenues, is one of the major growth drivers. The company’s strong aggregate shipments and pricing, underpinned by growing public demand and operational discipline, will aid the company to post higher revenues in the second quarter.

In addition to strong demand, public sector spending — which is less affected by general economic cycles and is deemed much more stable than private sector spending — plays a significant role in Vulcan’s overall business. These tailwinds are likely to help the company post improved results in the to-be-reported quarter.

Notably, the Zacks Consensus Estimate for Aggregates segment sales is pegged at $1,040 million, suggesting an increase from $956 million a year ago and a surge from $835 million in the last reported quarter. Aggregate shipments are expected to be 57,041 units, indicating an increase from 54,957 units reported in the prior-year quarter. Also, freight-adjusted average sales price for aggregates is likely to be $14.04, up from $13.77 sequentially and $13.29 year over year.

However, Vulcan may bear the brunt of unfavorable weather in second-quarter 2019. This may in turn have a negative impact on the company’s overall performance. Difficult weather conditions in geographies like West (i.e. California) and Midwest are likely to affect the company’s top-line growth, as its business is reliant on outdoor construction activity. Also, higher diesel and liquid asphalt costs have been a pressing concern.

Nevertheless, its focus on reducing controllable costs and maximizing operating efficiency is supposed to have more than offset the negative factors. In the past year, the company managed to exhibit solid performances even when diesel costs increased 25% and liquid asphalt expenses rose 32% year over year. This trend is likely to continue in the to-be-reported quarter.

Projections of Other Segments

The Zacks Consensus Estimate for second-quarter revenues for the asphalt segment is pegged $233 million, which implies 9% year-over-year growth. The. Concrete segment revenues are projected to improve 7% year over year to $115 million in the to-be-reported quarter. Calcium segment revenues are likely to increase to $2.34 million from $2.28 million a year ago.

Quantitative Model Prediction

Our proven model does not show that Vulcan is likely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company has an Earnings ESP of -1.73% and a Zacks Rank #3, which does not make us confident of an earnings beat in the to-be-reported quarter. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

It is to be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks With Favorable Combination

Here are a few construction stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Arcosa, Inc. ACA has an Earnings ESP of +15.22% and a Zacks Rank #2.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +2.68% and holds a Zacks Rank #1.

Louisiana-Pacific Corporation LPX has an Earnings ESP of +2.00% and a Zacks Rank #3.

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